Currency Exchange International, Corp.

Good morning, ladies and gentlemen, and welcome to the Currency Exchange International Q2 2025 Financial Results Conference Call. At this time, note that all participants are in the listen-only mode. Following the presentation, we will conduct a question-and-answer session. And if at any time during this call you require immediate assistance, please press star zero for the operator. Also note that this call is being recorded on June 12, 2025. And I would like to turn the conference over to Bill Matulis. Investor Relations. Please go ahead, sir.

Thank you, Sylvia. Good morning, everyone. Welcome to the Currency Exchange International Conference call to discuss the financial results for the second quarter of the 2025 fiscal year. Thanks for joining us. With us today are President and CEO Randolph Pena and Group CFO Gerhard Barnard. Gerhard will provide an overview of CXI's financial results and his latest perspective on the company's operations, Randolph will then provide his commentary on CHI's strategic initiatives, sales efforts, and business activities, after which we'll open it up for your questions. Today's conference call is open to shareholders, respective shareholders, members of the investment community, including the media. For those of you who may happen to leave our call before its conclusion, please be advised that this conference call will be recorded and then uploaded to CHI's Investor Relations website page, along with the financial statements and MP&A. Please note that this conference call will include forward-looking information, which is based on a number of assumptions and actual results of different materials. Please refer to our financial statement and DNA report for more information about the factors that could cause these different results and the assumptions that we have made. With that, I'll turn the call over to Gerhard. Gerhard, please go ahead.

Thank you, Bill, and thank you, everyone, for joining today's call. These results are presented in U.S. dollars. My overview of the company, CXI, will also incorporate the results of the discontinued operations of Currency Exchange International. As a reminder, on February 18, 2025, the group announced its decision to cease the operations of its wholly owned subsidiary, Exchange Bank of Canada. The plan aims for the bank to cease all customer activity by August 2025 in preparation for administrative and financial statement orders required and an application to the Minister of Finance in Canada to discontinue Exchange Bank of Canada from the Bank Act. This voluntary discontinuance is expected to be completed in the fourth quarter of 2025 subject to the receipt of all necessary regulatory approvals. Financial information on the bank's discontinuance is based on our current monthly updated information available as well as certain projected information based on various assumptions regarding revenue, expenses, currency movements, and client behavior to name a few. Any projected financial information as well as any information on the continued and discontinued operations mentioned in this call as well as forward-looking information involves known and unknown risks, uncertainties, and other factors that may cause the company's actual results, performance, or achievements to be materially different from any of its future information. As a result of the board's decision to discontinue EVP's operations, the company has set the requirements of IFRS 5, non-current assets held for sale, and discontinued operations. and concluded that the Canadian business component related to EBC should be presented as discontinued operations starting this quarter. That's the second quarter. According to IFRS site, the company presented the associated assets and liabilities within a disposal group on the consolidated interim financial statement as at April 30th, 2025. Also, the results of discontinued operations are presented as a separate line item in the condensed interim consolidated statement of income and comprehensive income net of tax. This classification resulted in presenting the company's results of operations for continuing and discontinued operations separately. Now, it is important to note that all results of continuing operations have been revised to exclude EBC's results and all associated intercompany transactions as per IFRS 5. The impact of EBC's results of operations is briefly discussed separately under discontinued operations as a segment in the interim financial statements. The United States operations represent continuous operations of the company and the Canadian operations present discontinued operations of the company. In the second quarter, we reported $2.7 million of net income from continuing operations and a net loss of $0.7 million from Exchange Bank of Canada, our discontinued operations. These results include restructuring charges related to discontinued operations in Canada, representing legal and advisory fees of about $200,000 pre-tax, and certain one-time charges of roughly $100,000 pre-tax. Now, excluding these items, the group's adjusted net income increased by 18% to $2.3 million compared to $2 million in the prior year. Adjusted diluted earnings per share of 36 cents was 24% higher than the prior year. Management anticipates that certain operating expenses and personnel costs that are currently shared with EDC will be 100% borne by CXI, subsequent to the exit of EDC from Canada, and that the current annualized estimated cost is approximately $3 million after tax. This estimate is subject to change throughout EDC, this continuous process. Now, let's look at the consolidated performance for the three months ended April 30, 2025, compared to the prior year. Before I go into details, I'd like to note that the company measures and evaluates its performance using a number of financial metrics and measures. some of which do not have standardized needs under general accepted accounting principles, or GAAP, and may not be comparable to other companies. Now, we call these measures non-GAAP financial measures and or adjusted results. The company's management believes that these measures are more reflective of its operating results and provides a better understanding of management's perspective on the performance. These measures enhance the comparability of our financial performance for the current period with the corresponding period in 2024. Management included the full reconciliation of the key performance and non-GAAP measures in the MD&A. When we refer to reported results, we refer to the results as reported in the financial statement based on IFRA, International Financial Reporting Standards. When we refer to adjusted results, such as adjusted net income, we refer to performance non-GAAP measures. The company generated revenue from continuing operation of roughly $16 million for the three-month period ended April 30, 2025, a 3% decrease from the prior period score. The revenue decrease was driven by a decline in the banknotes product line, despite a 5% growth in the payments product line. The decline in banknotes revenue was due to a decline in demand of foreign currency as travel activity tapered during the current quarter. Between February 2025 and April 2025, approximately 214 million travelers passed through TSA checkpoints in the United States airports. compared to roughly $216 million in the same period last year. Operating expenses decreased $1.2 million, or 10%. The company reported operating income of roughly $5.1 million in the current quarter, 16% higher than the $4.4 million reported last year, despite the decline in revenues. Now, this is primarily due to the favorable impact of a weaker US dollar on the revaluation of foreign currency banknotes holdings, which resulted in 780,000 foreign currency exchange gain in the current quarter compared to a foreign currency exchange loss of roughly 513,000 in the prior quarter. The group's net income, including the results from this continued operation, which is Exchange Bank of Canada, amounted to 2 million in the current quarter, compared to net income of 506,000 in the prior period's quarter, as last year's results were negatively impacted by the first tax charge of 1.4 million that was reported in EBC, which has been classified as discontinued operations. Adjusted EBITDA for the current quarter was 5.1 million, an increase of 15% compared to the prior quarter's 4.5 million. The following is a highlight of revenue by product line from continuing operations for the three months ended April 30th, 2025, compared to the previous three months ending April 30th, 2024. Now, Banknote's revenue had a 5% decline in combined wholesale and direct-to-consumer in the second quarter, compared to the prior period due to a decrease in consumer demand for foreign currencies as the quarter started slower, followed by a gradual improvement towards the end of the quarter. The company experienced growth in domestic financial institution customers while there was a decline in money services businesses. The business trading volumes on wholesale banknotes trading was 653 million for the current three-month period, compared to roughly 714 million in the prior period. Overall, wholesale banknotes accounted for 41% of total revenue, compared to 42% in the prior period. Direct-to-consumer banknotes revenue decreased roughly 380,000, or 6%. Despite the slight growth achieved through the online FX platform, driven by travel currencies Revenue generated via the other two delivery channels tapered slightly during the quarter. During the current quarter, the company added the state of Mississippi to its network, and the online FX platform Canal served its 46 states, including the District of Columbia. Four additional states compared to the same period last year. Business trading volumes on total direct-to-consumer banknotes revenue was about $90 million for the current three-month period compared to $94 million for the prior period. Direct-to-consumer revenue represents 42% in the current and prior quarter. Payments revenue. Revenue in the payments product line increased $135,000 or 5% in the three-month period compared to the prior period, supported by a 13% increase in trading volume activity from existing financial institution customers and the onboarding of new customers. Business trading volumes on payment revenues were 1.4 billion for the current quarter compared to 1.27 billion in the prior period. And payments make up roughly 16, 17% of our total revenue in the group. Now, the following is a highlight of the operating expenses for continuing operations for the three months April 2025 compared to the previous three months of last year. As stated above and throughout this document, all results of continuing operations have been revised to exclude EDC's results and all associated intercompany transactions. During the three-month period in that April 30th, 2025, the company's operating expenses decreased by $1.2 million, or 10%, compared to the same three-month period in the prior year. The ratio comparing total operating expenses to total revenue for the three-month period improved to 68% compared to 73%. for the three-month period in the 2024, primarily due to the large foreign exchange gains realized during the current quarter. Salaries and benefits expenses increased when compared to the prior period quarter, mostly driven by growth in in our new and the company-owned branch locations, in addition to general inflation increases in salaries and benefits. Marketing and publicity costs increased over 100%, primarily due to the company's expanded focus on marketing initiatives, campaigns, retail investment, and establishing customer loyalty programs that support corporate goals with a focus on the direct-to-consumer business growth. Bank services charges represent back charges associated with payments and banknotes, transactions, but primarily driven by the payments product. It is important to note that the CXI processes certain payments through EBC's correspondent bank and gets the chargeback allocated via intercompany allocations. Stock-based compensation includes a non-cash amortization expense related to the basing of the company's equity-based stock options. In addition to cash-based awards of RSUs and DSUs, the liability from DSUs and RSU awards is adjusted to reflect the closing price at the end of each quarter. During the current quarter, there was a net expense of roughly $65,000 related to outstanding DSUs and RSUs due to the impact of the decline in the stock price. This compares to an expense of $285,000 for DSUs and RSUs in the prior course. Losses and shortages typically represent shipment loss in transit that the company self-insures in addition to several other losses incurred in the normal course of savings. In the current quarter, the company has managed losses and shipments better in addition to some insurance recovery amounts related to shipment loss. losses and shortages are constantly decreasing. Foreign exchange gains or losses represents the net result of foreign currency exchange transactions after considering hedging and risk management strategies designed to reduce the inherent risk in the company's exposure to foreign exchange, thereby minimizing volatility in earnings. Net foreign exchange gains for the current quarter of 780,000 were primarily attributed to the impact of a weaker U.S. dollar against the company's foreign currency banknote holdings compared to the prior year's quarter where the company had 513,000 loss on foreign currency losses. The company's hedging strategy is designed to mitigate downside risk while allowing the potential gain when foreign currencies strengthened against the US dollar. The Euro was the last largest contributor to the next foreign currency gains for the three-month period ended 30 April 2025. And the prior period was impacted by losses realized primarily on the company's banknote holdings in Mexican pesos and exotic currencies. Interest on these liabilities reflects additional interest incurred for the corporate headquarters, as well as the Louisville vault that opened in the second half of last year. Interest expense decreased as a result of a decline in average borrowings. The company used the majority of its borrowing to fund EDC's operations, which started to taper during the current period. The average outstanding borrowings by the company amounted to close to $580,000 during the second quarter, compared to $1.3 million during the prior quarters, with the average interest rate on borrowing being 6.7% compared to about 7.7% in the prior year. Now, income tax expense in the current quarter is related to continuing operations in the United States. It primarily reflects an average and effective tax rate of 31%, where the majority of the increased expenses above the statutory length was related to stock-based compensation that was impacted by the climb in the share price as mentioned before. Summary of the results of continuing operations for the six-month period. Now, as stated above in the document, all earnings from continuing operations have been advised to exclude EBC's results as well as associated intercompany transactions. Revenue for the six-month period increased 816,000 or 3% from the prior period last year. The revenue increase over the comparable period was driven by growth in both product lines in the United States during the third quarter of the year and was primarily due to the addition of new customers and an increased demand for exotic currencies. The 3% growth in revenue was primarily driven by the famous product line, which had 550,000 or 11% growth, followed by a 1% growth in our banknotes' revenue. And this is for the six months, so year to date. Also, the direct-to-consumer banknotes businesses increased 185,000 and 82,000, while operating expenses decreased 445,000, or 2%. The company reported net operating income of 8.95 million during the current six-month period, which is 16% higher than the 7.7 million reported last year, primarily due to the growth in revenue and foreign currency gains realized in the current six-month period, compared to the prior year's six months. where the company had foreign exchange gains of $500,000 and comparing that to the prior period foreign exchange loss of $100,000, $85,000. The company reported the net income from continuing operations of $4.4 million for the current six months compared to $4.8 million for the same period last year. The group's net income including the results from discontinued operations, amounted to $2.8 million for the current six-month period compared to $1.36 million for the same period last year. As last year's results were negatively impacted by the first tax charge of $1.4 million that was reported in EBC, as I mentioned, which is now being classified as discontinued operations. the net income grew 583,000, or 21%, compared to the same period last year to 3.37 million in the current six-month period, compared to 2.8 million in the prior period. So really that 21% growth in the year-to-date numbers on the adjusted results. Now the following is a highlight of the revenue by product line for continuing operations for the last six months. Banknotes revenue. Revenue in banknotes grew in both the wholesale and direct-to-consumer and increased by 267,000, or 1%, in the current six-month period compared to the prior period due to stronger consumer demand for foreign currencies in the first quarter of the year, which tapered the best during the second quarter. Also, banknotes' revenue increased by 185,000, or 1%, as business trading volumes on also banknotes' revenue were $1.2 billion for the current three-month period compared to $1.3 billion in the prior period. While the company had growth in domestic financial institution customers, there was a decline in money services businesses. As I mentioned, overall, also banknotes accounted to roughly 41% of the total revenue. Direct-to-consumer banknotes revenue maintains levels with an 82% or 1% increase in the current six-month period compared to the prior period as the company maintains its market share through its diversified delivery channels, including online ethics platform, company-owned branches, and agent relationships. Payments revenue product line increased roughly $530,000 or 11% during the six-month period compared to the prior period supported by a 25% increase in training volume activity from existing financial institution customers and the additional onboarding of new customers. Now the operating expenses during the six months. decreased 445,000 or 2% compared to the same period last year. The ratio comparing total operating expenses total revenue improved to 71% compared to 75% in the previous period. As we mentioned, stock price compensation during the current period, there was an expense reversal in the amount of 110,000 related to the outstanding DSUs and RSU awards. As a result of a decline in the stock price, this compares to an expense of $846,000 for DSUs and RSU awards during the same period last year. Now, let's briefly look at this continued operation of current Health Exchange Bank of Canada. They had a net loss of $692,000 in the second quarter compared to a net loss of $2.2 million for the same period in the prior period. For the six months ending April 25, discontinued operations had a net loss of $1.6 million compared to a net loss of $3.4 million for the same period in the prior year. Diluted adjusted loss per share from discontinued operations was a loss of $0.09 for the second quarter and a loss of $0.18 for the six months ending April 2025. Reviewing the balance sheet, and it's at April 30th, 2025. Management views return on equity as a useful measure of return on capital invested. Due to the seasonality involved in the company's business, the company uses a trading 12-month net income to calculate ROE, which has been consistent at around 12% over the last 12 months. On April 30th, 2025, the company had a strong financial position with net working capital of $60 million and total equity of $81 million and had a 100% available unused line of credit amounting to $40 million. On November 28th, 2024, the CSX accepted the company's notice of intention to make another NCID or share buyback and automated Securities Purchase Planning, ASPP, to purchase for cancellation a maximum amount of 316,646 common shares of the company, representing 5% of the company's issued and outstanding common shares. Purchases under this NCID or shared by that commence on December the 2nd, 2024, and will terminate on December 1st, 2025. for such earlier date in the event that the maximum numbers of shares sold in the NCID has been reversed. Now, during the six-month period in the April 30th, 2025, the company purchased for cancellation 80,500 common shares at market prices trading on the TSX for a total of $1.2 million. These shares were immediately canceled and removed from trading. At this time, I would like to hand the call over to Randall Finner, our CEO, for his perspective.